The spread between Platts LNG Japan Korea marker and UK National Balancing Point forwards hit a 21-month low of $3.17/MMBtu Tuesday, a regional spread not seen since early November 2012.
The narrowing regional price divergence between Asian and European gas markets comes as LNG inventories in North Asia remain near capacity and as additional supply continues to enter the market.
A relatively mild winter in the premium Asia-Pacific market, followed by cooler temperatures this summer, have left Japan and South Korea, the world's largest LNG importers by volume, with high inventory levels.
"Prompt month [prices] have been heavily depressed this summer," said a trader in Japan. "[Spot] buying still seems to be mostly opportunistic at this point."
With demand for spot cargoes still weak, many Japanese utilities started negotiations for upcoming winter cargoes as far back as late June.
In South Korea, the world's largest LNG buyer Kogas has been actively exercising downward quantity tolerance on its long-term contracts over the last several months. In an attempt to stem the glut of supply, the Korean utility has also been seeking time-swaps on summer-delivered cargoes, according to market sources.
As demand from Japan, South Korea and even China cools, the premium price paid by Asian LNG buyers has been slowly evaporating since February when the JKM vs. NBP spread hit a record high at $10.46/MMBtu.
During the second half of July, injections of additional supply from Bintulu, Russia's Sakhalin LNG and Australia's North West Shelf have further depressed prices in the Asia Pacific region. The announcement this week that the Exxon-Mobil led Papua New Guinea LNG project has reached full production capacity has further exacerbated the over-supply situation gripping the region.
The September JKM was assessed down another 5 cents Tuesday to $10.625/MMBtu, the lowest level on record since the Fukushima nuclear disaster in March 2011.
